How to Spot Better Trades: The Numbers Game

Most traders rely on gut feelings and chart patterns. Here's the quantitative framework that's helped me separate winning trades from expensive lessons:

My Trade Evaluation System:

Weighted Expected Value Framework
Before entering any position, I map out potential scenarios with probabilities and payoffs. Hard to nail exact percentages, but forces you to think beyond "number go up."

Example: Recent AI meta play had 30% chance of 5x, 40% chance of 2x, 30% chance of -50% loss. Math worked out to positive expected value, so I sized accordingly.

TVL Ratio Analysis (DeFi Plays)
FDV/TVL gives you the premium you're paying for protocol adoption. When $BTC was ranging, I found DeFi protocols trading at 2-3x TVL while competitors were at 8-10x. Easy arbitrage.

For protocols without TVL: Compare fees, deposits, and revenue metrics against sector leaders.

Sharpe Ratio Reality Check
Risk-adjusted returns reveal which trades actually make sense. Use 30-day rolling Sharpe for swing positions. Sweet spot is 0.5-1.5 range.

Pro tip: For newer projects without price history, Sortino ratios work better since they only penalize downside volatility.

The Hard Truth:

Good trades aren't about finding the next moonshot - they're about consistently making mathematically sound decisions that compound over time.

When $ETH was consolidating at $2,400, the Sharpe ratio analysis showed it was a better risk-adjusted play than chasing small-cap alts pumping 20%.

Which metric would change your current trading approach most?

#tradingStrategy #RiskManagement